I am the Founder of Community of Liberty, a chapter based organization committed to pursuing the art of living in liberty, a member of the Publication Committee of the Claremont Review of Books, an Advisor to TheGold StandardNow.org, and a juror for the Bastiat Prize for Journalism. I have just published with my co-author Ralph Benko the booklet, "The 21st Century Gold Standard: For Prosperity, Security and Liberty," now available as a free download at AGoldenAge.com. I bring to my columns an extensive background in the investment management business, including my experience as an equity portfolio manager, strategist, president of my former firm’s retail sales and marketing subsidiary and member of the parent firm’s management committee. As such, I have been a student and observer of the political/economy and its affects on markets, businesses, and my own business for more than 30 years.

The Federal Reserve's Explicit Goal: Devalue The Dollar 33%

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

An increase in the price level of 2% in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.

But, an increase of 2% a year over a period of 20 years will lead to a 50% increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods 100 (2012) dollars can buy today. What will be called the “dollar” in 2032 will be worth one-third less (100/150) than what we call a dollar today.

The Fed’s zero interest rate policy accentuates the negative consequences of this steady erosion in the dollar’s buying power by imposing a negative return on short-term bonds and bank deposits. In effect, the Fed has announced a course of action that will steal — there is no better word for it — nearly 10 percent of the value of American’s hard earned savings over the next 4 years.

Why target an annual 2 percent decline in the dollar’s value instead of price stability? Here is the Fed’s answer:

“The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.”

In other words, a gradual destruction of the dollar’s value is the best the FOMC can do.

Here’s why:

First, the Fed believes that manipulation of interest rates and the value of the dollar can reduce unemployment rates.

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Excuse me, can I ask why a respectable publication like Forbes is letting this nutter put his byline here? A two percent annual inflation rate is, as the FOMC points out, a good target since it keeps us out of the dangerous territory of deflationary spirals, which are very difficult to escape from. And as far as gold standards and goldbugs go, I will stick with fiat money thank you very much. Mr. Kadlec should probably move to one of those libertarian oil-platform microstates where he can hang out with the other goldbugs.

There is no escape from the uncertainty associated with the paper dollar. If you believe the dollar will continue to fall in value, then you should own hard assets, including real estate and precious metals such as gold. However, the price of gold already reflects much of the concern over the devaluation of the dollar. And, in the short run, prices of inflation hedges can fall as well as rise, as we saw in the last half to he last decade in real estate, and over the last year in gold and silver.

The only solution is to define the dollar again as a unit weight of gold. To learn more, please visit agoldenage.com, where you can download for free a booklet I co-authored, “The 21st Century Gold Standard: For Prosperity, Security and Liberty.”

Agreed, however I buy silver, the poor man’s gold (or devil metal). I know it’s heavily manipulated by JP Morgan and their phony “paper silver”. However, if it is allowed to seek it’s own value I think it will go above $100 an oz, possibly more. Of course that would be impossible to measure if the dollar crashes and has no value.

Why is it that Forbes is just now coming to realize this?; Now that the only highly impactual proponent of the gold standard from a politician we have had in 40 years has already been marginalized and basically removed from the public’s thoughts.

Ron Paul was the man, not just because of this though. It is just too bad that a 78 year old man is followed so far behind by mass media that it is too late for him to actually take action by the time they realize his methodology is the only thing worthwhile coming out of Washington.

Unfortunately, as he was our last best hope, there is no alternative with similar momentum, and you can rest assured that logic regarding monetary policy will be put on the back-burner in the public eyes until it is far too late for the American public.

We will come out of this crisis, but not before the entire middle and lower classes are sucked dry, and American national credit and currency is completely shot.

They will have no problem devaluing the dollar over the next 20 years. They claim 2.5% inflation (representing a loss in dollar value) while notable economists say 6%, some even say 8%.

At 8% that’s a 32% loss of value in 4 years. Does that mean they should all get a raise for a job well done? The only thing propping up our dollar is the fact that it’s the global trading currency. With BRICS, the Chinese/Japanese agreement for yen/yuan swaps in trading and Iran trading oil for gold with several nations, time is NOT on our side.

If the value of the dollar zeros out by Jan 2013, does that mean they have been incredibly successful? Get the Fed out of our money. They are simply a debt machine for the global financial elite, of whom prosper from the global debt crisis.

This would make sense for the goal stated except that it’s based on a faulty premise about the rate of current inflation. Up until the point where we began signing onto numerous free trade agreements, inflation was calculated differently — it included food and energy prices. The Fed policy to devalue the currency to keep inflation steady is the wrong view because prices on gasoline and food have gone up. Prior to 2003 consumers spent less than 8 percent of their income on gasoline, that figure has probably increased as we approach $5 per gallon gas. Some may recall that during the recession food packages shrank but prices didn’t — well, the grocers of America are at it again but this time sharp increases in the food markets are going to be harder to conceal thanks to the severe drought of 2012. Recall, too, during the height of the recession shortages of rice, leading places like Costco to ration one bag per customer. Meanwhile, there were “tortilla riots” in Mexico. Some have even said that the rising cost of food and gasoline also played a role in the Arab Spring.

I am gravely concerned that the decision to devalue currency to spur inflation is the wrong move at the wrong time. The primary benefit of devaluing the currency, as I understand it, is to “out inflate” the national debt. Since we can’t pay off $16T and raising taxes as a funding source is universally unpopular in today’s spend-now, pay-later climate, the Fed appears ready to use inflation to do the job Congress and the voters will not. There is, however, no free lunch. Inflation as a product of intentionally devaluing the dollar, however, is a very real tax on all of us. Still, it’s a move that is less likely to trigger the public to “connect the dots”, thereby triggering unwanted alarm (and possibly mass demonstrations). Most people, on the other hand, don’t become alarmed over incremental change. And so the frog-in-the-pot-of-boiling-water phenomena would appear to be the operative strategy at play. Still, the Fed’s decision is likely to backfire in that currency devaluation won’t grow jobs because it will contribute to weak consumer demand as wage earners see their incomes remain flat. As households buy less, that means fewer jobs and higher unemployment numbers as the devaluation process erodes our collective buying power.

I can’t say this emphatically enough: The Fed policy is the wrong strategy for America! Better that our politicians on the Right and the Left grow a backbone and tell the American people the truth: We are facing insolvency and tough decisions about taxes, military expansion and entitlements are unavoidable. Leaving the Fed to do the dirty work will only mean that a bad economic situation is made worse as more and more Americans become dependent on food stamps (already a reality) and fewer and fewer contribute to the state and federal tax base. By undercutting the consumer base, even greater opposition to taxation will grow, and the resultant revenue loss will ramp up the national debt even more. The Fed has it entirely backward here. They need to push back on Congress to do their job. That’s ostensibly why these politicians run for office — to lead!

Voters need to demand accountability before its too late and we’re all left to wonder why there’s no more middle class, and the resultant vacuum is filled by “socialist” proposals, all designed with one purpose in mind: to placate the impoverished masses before they begin to take to the streets, pitch forks in hand.